Current situation with dumb money buying BTC:
- Tether prints tethers to buy bitcoin
- BTC-USDT price skyrockets
- Arbitrage bots buy BTC-USD, because everyone assumes 1 USDT = 1 USD
- BTC-USD price matches BTC-USDT price
- Price increase brings in more dumb money USD to buy BTC, skyrocketing price further
- Arbitrage bots sell BTC for USD, profit
- Tether sells BTC for USD
- Tether is now “backed” by USD — can afford to redeem tethers for the small number of people who convert USDT to USD
- Tether pockets USD, prints more tethers …
What if the flow of dumb money slows down or stops? (due to higher prices, and simply no more mattress cash to dump into BTC)
- Tether prints tethers to buy bitcoin
- BTC-USDT price skyrockets
- Arbitrage bots buy BTC-USD
- No more dumb money = no more USD arbitrage profit
- Less arbitrage = increasing gap between BTC-USDT and BTC-USD prices
- Now there is arbitrage opportunity the other direction
- Buy BTC-USD, sell BTC-USDT, sell USDT for USD
- Tether now has to redeem tethers for USD
- The bigger the gap, the more tethers they have to redeem
- If they stop printing tethers, the BTC-USDT price collapses
- If BTC-USDT price collapses, arbitrage bots buy BTC-USDT and sell BTC-USD, further collapsing BTC-USD
- If they keep printing, the gap widens and they have to redeem more and more tethers for USD
- At that point, the game is up and Tether will have no incentive to continue redeeming tethers. The tether market collapses. You can redeem 1 USDT for 1 cent. BTC paper profits are wiped out. Tether is left with >600 million USD in the bank.
The phenomena to watch out for in this scenario are:
- Increasing gap between BTC-USDT and BTC-USD prices
- Increasing volatility of USDT-USD price, followed by collapse
What made this nation great was not the constitution imposed on it or the fake revolution against British rule. It was the relative lack of rule from 150 years before the revolution, as compared to the European monarchies, and the cultural traditions that grew from that.
The constitution failed, the revolution failed, and all they accomplished was the steady growth of despotic government that Americans originally hated. There never should have been a “United States”. In fact, if the Americans had gone down the path of liberty, the British would not have been able to stop them anyway. Their hold on the colonies was already tenuous.
This enduring myth that the revolution and constitution created liberty is the foundational error of American political consciousness. They were a step backward for liberty. Yet American conservatives, and some libertarians, fall on the crutch of the constitution, like ideological cripples. The myth must be exposed and rejected. It is the only way to accept responsibility for figuring out how to achieve liberty.
The strength of a cryptocurrency is the share of global processing power it can muster in service of its ledger. An attack by a significant computational resource (botnet, mining pool, government supercomputer, etc.) could potentially reverse recent transactions or cause a fork of the currency. The reason the global share matters is that computational power is fungible, and may be used in service of any cryptocurrency.
The less computational power dedicated to mining a crypto, the more vulnerable it is to attack. Alt-coins that do not command as much hash power as Bitcoin would be first in line.
Processing power over time is governed by the price per computational unit and by the price of electricity. For example, a spike in electricity prices or transistor prices would increase mining costs, and therefore transaction fees, possibly disrupting the usability of the currency. A sudden drop in electricity prices or transistor prices would reduce mining costs, increasing the chance of attacks on a currency’s ledger.
Such attacks could be orchestrated, not necessarily to steal the underlying wealth of currency holders, but to accomplish secondary effects beneficial to the attacker. For example:
- A large investor in a particular crypto may attack a competing (smaller) crypto intruding in the space. This implies a first-mover advantage in the cryptocurrency space and stratification of crypto, with one per defensible economic niche. Eventually, the market may consolidate into one global crypto.
- Momentarily disrupt the functioning of a crypto at a critical moment in its development, for maximum PR effect, to spread fear & uncertainty to potential investors and adopters.
- Momentarily disrupt recent transactions to create uncertainty for retailers accepting the currency & consumers using it.
- Permanently disrupt or fork a smaller currency.
You would only need to bid on computing power for a short time to cause a major disruption. Miners are very sensitive to transaction fees, so would quickly respond to any change in market demand. Furthermore, cloud mining operations, and cloud computing in general, provide an easy way to quickly spool up computing power for a short time, disrupt the target crypto, and spool down, thus minimizing costs.
Alt-coins based on a permissionless, global blockchain are very vulnerable to this type of attack. Eventually, even Bitcoin itself may come under attack should there be a revolutionary development in computational hardware, exploited by a group of early adopters, or a government willing to throw massive fiat to kill it once and for all.
Libertarians living off tax money is unethical, but it’s an even bigger practical problem. It shows that living without the government teat is impossible, that living on theft is the only way. It is philosophically damaging to the idea of a voluntary society. It is also bad marketing to people who ask questions like “who will build the roads?”
There will never be a day when we simply “get rid of government”, such that everything is perfectly free. This is because no one wants to be the first to give up their government goodies. Just as unilateral free trade is better than mutual protectionism, unilateral voluntarism is better than mutual theft. We can only ever get rid of government by showing, in practical terms, how to make a living without it.
Is it difficult? Extremely! Will it mean less money and fewer opportunities than working for the government? Yes! That is the price of advancing liberty. Many people are not up to the task. But then don’t blow hot air about liberty, if you are unwilling to do what is required to bring it about. It reeks of hypocrisy. The pioneers of liberty are the ones who show how to make a living, or even be rich, without stolen tax money. If they show the way, others will follow, simply because it’s in their self-interest. And isn’t that what we say motivates people, rather than abstract principles that contradict their daily reality?
I had a couple of objections to my argument that living off the government is unethical.
First, if accepting a government wage is unethical, then using the roads must also be unethical.
But this is not the case if one uses the net tax payer vs. net tax taker standard. Using the roads is simply redeeming what was stolen from me. Earning a government wage is 100% theft.
What about using the roads without having paid any taxes? Should the government compel this person to pay taxes in order to justify using the roads?
If one looks at the road as just a pile of stolen money, the ethical way to remedy a theft is to split the money proportionally to what was stolen, and return the money to the victims. Since the road cannot be split physically, its use may be split, effectively as usage vouchers, for the expected lifetime of the road that was built from that theft. In other words, privatized.
The person who infringes on the use of the road without having had anything stolen in the first place, is infringing on the usage of the people who were stolen from. He would be responsible for compensating those privatized owners, not for paying new taxes, i.e. new thefts committed against him.
This standard is consistent with not accepting any of the government’s stolen loot, unless, and only in the amount that, one was stolen from.
A corollary objection is, doesn’t this imply a need for government borders, since illegals use roads without having paid taxes?
Punishing people collectively is not justified, just because they are foreigners. Furthermore, no one has commited any violations prior to crossing the border, so no a priori punishment is justified. Many end up working and having money stolen from them. However, any who do receive more from the government than was stolen from, are also stealing, the same as Americans who do so. So, there is no categorical difference between Americans and foreigners. No national border is justified, any more than any arbitrary border within the country.
The second objection is, while it may be unethical to provide services to the government in exchange for stolen money, it is okay to simply receive the money, as in Social Security payments.
If someone steals your car, you can justly recover your car, since you hold the rightful title. If they steal your car and give it to a friend, you can also justly recover your car from their friend, since they do not have any rightful claim on it. It is unethical for the robber’s friend to receive the stolen car.
Similarly, it is unethical to accept stolen money, since the victims have a right to have their money returned, from the money handed out by the government.